Hochul signs tax break extension over watchdog objections

(The Center Square) — New York Gov. Kathy Hochul has extended a tax break for commercial and industrial properties in New York City, brushing aside objections from tax watchdogs who say the program costs the city more than $500 million a year with little return on the investments.

Hochul recently signed legislation renewing the city’s Industrial and Commercial Abatement Program. The program offers property tax breaks for up to 25 years for buildings that are built, modernized, expanded, or otherwise improved. The taxpayer-funded program is intended to encourage commercial construction outside of New York City’s business district.

The program was set to expire in 2025, but the Democratic-controlled state Legislature extended it by an additional four years at the request of New York City Mayor Eric Adams, a Democrat, and the city Real Estate Board of New York, which lobbied top state and city officials to extend the tax breaks.

Budget watchdogs, including Reinvent Albany and Citizens Budget Commission, called on Hochul earlier this year to veto the bill or limit its extension to only one year so that state officials can study the effectiveness of the tax breaks on commercial development outside of Manhattan.

Reinvent Albany blasted Hochul for signing the extension, saying the program is “completely out of control” and will cost New York City taxpayers at least $2 billion and divert more than $400 million from the city’s public schools over the next four years. The watchdog group pointed to data from the New York City Council showing that in 2016, only 3.6% of projects getting the tax breaks needed them to be financially feasible.

“Disgracefully, it’s well known that ICAP does not work,” the group said in a statement. “CAP is a mega-turkey, and the Governor and Legislature should do their duty to the public and stop giving this money away.”

The cost of the tax breaks to NYC has increased six-fold over the past seven years, according to state records. In fiscal year 2017, the program cost the city $81.4 million, which increased more than $506.3 million in the previous fiscal year. Critics had urged Hochul to allow the city’s Independent Budget Office to conduct a review of the program’s effectiveness before extending it.

“The rushed, under-the-radar ICAP extension continues the state’s poor practice of preserving economic development tax incentive programs without proof they work — or in some cases, despite evidence they are ineffective,” Citizens Budget Commission president Andrew Rein said in a recent letter to Hochul urging her to veto the bill.

The Hochul administration and other supporters argue the tax break promotes crucial economic activity and have raised concerns that allowing it to lapse would impact economic development outside the city.

State and city leaders also argue that the tax break is needed to make a new generation of energy-efficient power plants economically viable and keep costs down for energy consumers.

Developers participating in the program get a tax break for up to 12 years for improvements they make to properties, with the abatements phased out over the term of the contract. In order to qualify, the new construction or renovation must cost at least 30% of the current assessed value of the property, according to the New York City Department of Finance.

“Encouraging investment in commercial buildings is critical to ensuring that New York continues to attract high-paying employers and the daytime foot traffic that is essential for vibrant retail businesses in our commercial business districts,” the real estate board said in a recent statement.

New York officials have said they are willing to consider reforms to the program, but critics point out that the tax breaks have been extended several times amid pledges to scale back the program.

“Several similar incentive programs continue to be extended with the tax abatements set at the state level, even as they take money out of the city’s coffers,” Rein said in a statement. “But the highly entrenched system — supported by lobbying and justified by economic development claims — shows few signs of going away.”